Reverse Mortgage Pitfalls: Are You Prepared For The Worst?

Written by Barry Crewse

Sunday, 10 August 2008

Reverse mortgage pitfalls. It should be a statement that everyone one should contemplate when considering taking such a loan.

by BarryCrewse

Reverse mortgage pitfalls. It should be a statement that everyone one should contemplate when considering taking such a loan.

Unless you came into this world with out your eyes or ears you have most likely seen all the ads on TV, the radio and in newsprint as well.

This type of loan probably fits well for many people as I'm certain that is does but there are many caveats that you need to pay very close attention to and be aware of when considering a reverse mortgage loan.

There are well over a dozen types of reverse type loan concepts floating around out there at the time of this writing.

Taking this into consideration, your first consideration should be to seek out lenders who offer a large number of these loans for you to consider.

Be very suspicious of any lender who will only be willing to offer you a couple of choices as these are most likely in house loan packages that are designed for the lenders self interest. These loans may not offer you the best rates and terms available elsewhere on the market.

Reverse mortgage pitfalls can be completely avoided by arming yourself will all the facts before you go shopping for one of these loans.

Reverse mortgage loans are usually structured around a couple basic requirements. The first and foremost is your age. HUD for instance requires you to be 62 while the more conventional market will make loans to younger groups.

The main pitfall with this one is that the younger you are when the loan is made, the less interest you will be offered which can have dire consequences down the road.

The inflation factor. It will never go away so as the cost of living expenses grow year after year will your loan payment increase as well?

Your reverse mortgage contract must include some sort of cost of living adjustment. If it doesn't where do you think your income will put you 10 years from now?

Another reverse mortgage pitfall factor that you must pay close attention to is your yearly taxes. These must be payed by you, the home owner. Have you figured those costs into your income levels 10 years down the road from now?

Keeping up your property. Yes, the lenders will require this. Expenses such as roofing, heating, air conditioning, plumbing and on and on will pop up from time to time and you need to factor in these costs over the years as well.

Your home owners insurance payments. Your lender will require that you keep up to date insurance on your property as they need to protect their investment. Have you included those costs into your future income forecast?

Finally, you must continue to pay for all the related utility costs to the property. As with the inflation factor previously mentioned, what do you think you will be paying for electricity 10 years from now?

So what is the bottom line? These are but a few of the pitfalls you need to consider when talking with your lender. There are many more and you can find these online if you know where to look.

Take all your cost you expect to pay over the next 10 to 15 years and make sure the contract you agree to will adjust upwards as these costs increase. The power of your dollar today should have the same power 10 years from now.

Reverse mortgage pitfalls? Yes but certainly not always. Depending on how you structure you loan it could work out beautifully for you in the end. It all depends on how much knowledge you are bringing to the table and remember that knowledge equals power and only you decide how much power you will bring to that table!

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